Twitter has filed to float on the stock market. But will pressure to turn out fat dividends for shareholders endanger the platform that has become so popular? And is it really worth $10bn?
They did not make it to be a global platform for free speech.
But since Twitter started in 2006 as the by-product of a failed podcasting company, it has been credited with kick-starting a series of revolutions in the Middle East and becoming a global news source. It could now make a lot of people very rich as it is floated out to the stock market valued at $10bn.
However transitioning from a tech world darling to successful public company is not always a smooth path, as Facebook found out last year.
Can it really be worth that much? And will the pressure to turn out fat dividends for the shareholders endanger the platform that has been so globally popular?
Alex Wood, editor of London-based TechCityNews says no.
“I think Twitter is massively over-valued. I think it’s going to be one of the last of these IPOs that has a really questionable business model behind it.”
Like Facebook, Twitter makes money through advertising. But though both services have got adverts, it remains unclear that these ads are benefitting advertisers, Mr Wood claims.
“Yes, they are getting adverts, but it is unproved whether these ads are bringing in any value. I just don’t think it adds up.
“A lot of people in [ad] agencies are asking difficult questions about that kind of advertising.
“They can make money in the short term because there are a lot of ad agencies out there with ad budget to spend. But what I’m hearing from people in the agency world is that they’re not seeing the value coming through. I don’t think these are sustainable long-term business models.”
Whether or not social media advertising collapses in the long-term, bringing social media down with it, the fact is that we are likely to see a lot more of it in the short-term. And the new commercial pressures on Twitter means there will be significantly more adverts in your Twitter feed.
Twitter makes money through adverts. It is not known how much because the company has submitted its financials to the SEC in a secret form. But we do know it is under $1bn a year because it has to be to qualify for the secret IPO filing.
An estimate from eMarketer puts Twitter’s yearly ad revenues for 2013 at $582.8m in 2013.
Yes, Twitter will start to push more adverts post IPO, says Patrick Smith, editor of the Media Briefing and digital advertising expert, but he expects that users won’t see a big change very quickly:
“I think Twitter will be cautious when it comes to changing what is already a successful platform. All advertising is about brands, marketers borrowing the relationship a service has with its users, that relationship is a very delicate thing and can be broken very easily if you are sold to in a naked obtrusive way.”
He expects a gradual ramping up of sponsored content – in the way that Facebook has. These adverts are also likely to be geo-targeted, serving you adverts according to where you are. And keyword targeted – if you’re tweeting about cupcakes, you’ll get more adverts for cupcakes.
But it is not just by showing you adverts that Twitter can make money. It does not hold a lot of data on its users’ lives – Facebook has a lot more – but it does have a lot of information on its users’ conversations. And advertisers are very interested in that.
“Twitter holds the data on how we interact with each other and with brands, and it pretty much has a monopoly on that.”
“For marketers and for advertisers that’s a really valuable set of data about consumer behaviour. So it might be that what it sells in future is access to that kind of behavioural data.”
Having shareholders to pay and advertisers to please could change one other thing on Twitter too: trolling. Mr Smith expects we might start to see a little less of the kind of abusive trolling that took all the headlines recently.
“Any platform where there’s a lot of people being abusive to each other is going to be detrimental to user experience and will be a concern to advertisers. It’s a platform management problem – where you have several million people having a conversation that’s completely ungoverned.”
Abusive tweets of the sort we saw in August against feminist campaigners may not sit so well next to adverts for shampoo.
“It’s unquestionably a risk for them,” says Mr Smith “and I’m sure when they list their material concerns the legal threat from the courts, from all sort of people will feature.”
We will find out 21 days before the shares go on sale, when Twitter will have finally to reveal its financial filings.